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Approved Changes (3)

Ireland

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Ireland Revenue Publishes eBrief on Qualifying Avoidance Disclosures

On 30 January 2015, Ireland Revenue published eBrief No. 16/15 on qualifying avoidance disclosures. According to the eBrief, taxpayers who make a qualifying disclosure and settle the tax due on tax avoidance transactions entered into on or before 23 October 2014, will be eligible for a 20% reduction in the amount of interest due, and will be exempt from certain surcharges. A disclosure must be made in writing to the Revenue Commissioners on or before 30 June 2015.

Click the following link for Revenue eBrief No. 16/15 for additional information.

Taiwan

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Taiwan Clarifies Deductibility of Interest Expense

On 30 January 2015, Taiwan's Ministry of Finance published a notice clarifying the treatment of interest expenses. According to the notice, interest expenses are only deductible when a loan is obtained for reasonable and necessary cases. In general, a reasonable and necessary case is when current funds are not sufficient to cover business operations. If a loan is not deemed necessary, the related interest expenditure will not be considered as a deductible expense or loss.

Thailand

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Thailand Approves Tax Cut for SMEs

Thailand's Cabinet has approved a proposed measure and draft royal decree reducing the corporate tax rate for small and medium-sized companies from 20% to 15% on income between THB 1 million and THB 3 million. The reduced rate already applies for income up to THB 1 million, while income up to THB 300,000 is exempt. Income over THB 3 million is taxed at the standard tax rate of 20%

In order to be eligible for the reduced tax rate and exemption, a company's paid up capital must be THB 5 million or less, and annual turnover may not exceed THB 30 million in any accounting period.

The change applies from 1 January 2015.

Proposed Changes (2)

Russia

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Russia's Proposed Changes to Thin Cap Rules

The Russian Government has submitted a draft law to parliament that would change the country's thin capitalization rules. The changes are largely in line with a draft proposal published by the Ministry of Finance in May 2014. The key proposed changes to the rules are summarized as follows.

Definition of Controlled Debt

The main change is in the definition of controlled debt, which would broaden the application of the thin capitalization rules. Currently debt is deemed controlled when there is a direct or indirect ownership subject to certain conditions, but under the proposed rules, debt will be deemed controlled based on the definition of interdependent persons, which includes:

  • When one party has a direct or indirect participating interest of 25% or more in the other, or a third party has such an interest in both parties
  • When one party has the authority to appoint 50% or more of the members of the executive body of the other
  • When a single party acts as the executive body for both parties
  • When there is a chain of ownership with each party owning a 50% or greater participation in the next
  • When one party has influence over the terms or results of the other's transactions or economic results of their activities

Based on this definition controlled debt will then include:

  • Loans provided to a Russian borrower by a foreign interdependent lender
  • Loans provided to a Russian borrower by a Russian lender that is interdependent with a foreign interdependent party of the borrower, and
  • Loans provided to a Russian borrower that are guaranteed by either a foreign interdependent party or by a Russian party that is interdependent with a foreign interdependent party of the borrower

Leasing Income Threshold

A 90% leasing income threshold is introduced for leasing companies. If the threshold is not met, a debt-to-equity ratio of 3:1 will apply instead of the 12.5:1 ratio that applies under current law. Otherwise the current application of the 3:1 and 12.5:1 ratios are unchanged.

Bank Exemption

An exemption from the rules is introduced for loans from third party banks when:

  • There is no interdependent relationship between the bank and the borrower or a foreign party acting as guarantor for the loan, and
  • No accounts or deposits with the bank or any party interdependent with the bank are held by the foreign guarantor, and no property of the foreign guarantor is managed in a fiduciary capacity by the bank or any party interdependent with the bank

A further exemption is provided in regard to the second condition above when the foreign guarantor's accounts or deposits do not exceed 50% of the outstanding debt amount, and the funds in the accounts or deposits are not used as collateral for the guarantee.

Effective Date

The parliamentary approval process for the changes has not yet completed and the rules are subject to change. If approved, the changes are expected to enter into force 1 January 2016.

United States

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U.S. Fiscal 2016 Budget Sent to Congress

On 2 February 2015, U.S. President Barack Obama's Fiscal 2016 Budget was sent to Congress. Key corporate tax measures included:

  • A one-time tax of 14% on un-taxed foreign earnings accumulated overseas (to be used to fund transportation infrastructure repairs and improvements)
  • A minimum tax of 19% on foreign earnings going forward with no deferral option
  • A reduction in the top marginal corporate tax rate from 35% to 28%
  • A new surcharge on financial firms with more than USD 50 billion in assets

Given the currently Republican controlled Congress, it is unlikely the measures will be approved in their current form.

Treaty Changes (2)

Bangladesh-Kuwait

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Update - Tax Treaty between Bangladesh and Kuwait

The income tax treaty between Bangladesh and Kuwait was signed 19 February 2014. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Bangladesh income tax, and the following Kuwaiti taxes:

  • Corporate income tax,
  • The contribution from the net profits of the Kuwaiti shareholding companies payable to the Kuwait Foundation for Advancement of Science (KFAS),
  • The Zakat, and
  • The tax subjected according to the supporting of national employee law

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company which owns at least 3% of the shares of the paying company, otherwise 10%
  • Interest - 10%
  • Royalties - 10%
  • Capital Gains - generally exempt, except for gains from the alienation of immovable property and gains from the alienation of movable property forming part of the business property of a permanent establishment

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged. It will apply in Bangladesh from 1 July of the year following its entry in to force, and will apply in Kuwait from 1 January 2014.

Romania-Tunisia

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SSA between Romania and Tunisia to be Negotiated

According to recent reports, the Romania government has authorized the negotiation of a social security agreement with Tunisia. Any resulting agreement will be the first of its kind between the two countries, and must be finalized, signed and ratified before entering into force.

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